Mr. Obama: Declare War on Rube Goldberg

In today’s Wall Street Journal, Holman Jenkins identifies the key culprit in the current economic woes. It’s not Hank Paulson or Hank Greenberg or Stan O’Neal or even George Bush. The most formidable enemy of the American economy is Rube Goldberg.

Jenkins starts by discussing the complex set of rules that have enabled autoworkers to win the contracts that have crippled the American auto industry:

… the single biggest factor in preserving the UAW’s monopolistic power has not been labor law but Congress’s fuel-economy rules. These effectively have required the Big Three to lose tens of billions making small cars at a loss in UAW factories. Not only were the companies obliged to forgo profits they might have earned importing such cars, but CAFE deprived them of crucial leverage to control labor costs by threatening to move jobs to a factory in Spain or Taiwan or Poland.

The CAFE standards — a Rube Goldberg system known formally as Corporate Average Fuel Economy standards — distort the automobile marketplace while dismally failing at their fundamental reason for existence, which is to reduce carbon emissions. Jenkins then ties the proposed auto bailout to the financial meltdown and other issues (emphasis added):

A whole lot of Rube Goldbergism is coming home to roost, in the auto business, in the mortgage market, in the health-care market, in farm policy. We need to simple-down. The economy has a giant adjustment ahead, paying off debts, going from a heavy absorber of foreign capital and goods to a rebalanced relationship with the world.

The good news is that we have a natively resilient, flexible economy capable of making these adjustments — unless bound up in Rube Goldbergian mandates. Barack Obama, bless his heart, may or may not be ready for what’s coming his way. Yet his objectives are perfectly amenable to the simple-down approach.

He asked on Monday for Detroit to deliver a “plan” somehow to reconcile, at long last, the fantasy life of Washington, with nobody losing a job, with super energy-efficient cars, and yet somehow all this being done at a profit to Detroit.

Here’s a plan, but it requires Mr. Obama to play a role too, finally relinquishing such chronic free-lunchism where autos are concerned. He should simply get rid of the CAFE rules and impose a gasoline tax to move the country to a “new energy economy,” if he really believes in panicky climate predictions and/or that “energy independence” would be a net improver of American welfare. And be prepared for Detroit to shift jobs offshore if the UAW won’t concede competitive labor agreements.

Economist Greg Mankiw has been a champion of a gasoline tax for years, periodically welcoming new members in the Pigou Club, a collection of economists and pundits who favor Pigouvian taxes, which Wikipedia describes as “a tax levied to correct the negative externalities of a market activity.” Mankiw does a thorough job of advocating for a gas tax in his Pigou Club Manifesto. Here’s my shorthand version: Raising the gas tax substantially would automagically lead to more fuel-efficient cars, and the tax revenues raised could be used for good purposes such as reducing other taxes and remediating carbon emissions.

Having already established my credentials to offer “improvements” to Mankiw’s ideas, I want to point out that his specific proposal, which seemed bold when he unveiled it two years ago, now looks quaint:

I would like to see Congress increase the gas tax by $1 per gallon, phased in gradually by 10 cents per year over the next decade.

After watching gas prices go from $2 to $4 and back to $2 in a matter of months, it now seems clear that a series of annual 10-cent increases would go virtually unnoticed, thereby reducing the desired effect. But that’s a quibble — maybe it should be 50 cents annually for four years, or whatever.

Today’s WSJ also has a tantalizing hint that Mr. Obama might be amenable to taking on Rube Goldberg:

As part of his plan to kill government programs “that have outlived their usefulness,” the President-elect singled out farm subsidies for the rich. If he really means it, this would be big news.

Indeed it would — especially if it were a first step toward eliminating the Goldbergian farm subsidies altogether, along with the negative externalities they entail.

6 thoughts on “Mr. Obama: Declare War on Rube Goldberg

  1. Good luck ridding the country of the CAFE standards. I’d like to see that myself, but I think they’re as established as the Department of Energy itself. And about as useless.

    One problem with CAFE would be the loopholes. Automakers were (perhaps still are) allowed to buy old cars from people and crush them, receiving credit for each “old gas-guzzler” removed from the road. Not all old cars are guzzlers, VW’s and Corvairs for example, and many classic cars were lost to the crusher just so American automakers didn’t have to meet CAFE requirements.

    Also, I don’t see the connection between increasing federal gas taxes and reducing the ridiculous burden that UAW labor places on manufacturers. Did I miss something? Europe has high national fuel taxes, yet their auto labor overhead is every bit as bad as ours.

    A previous poster on one of your blog entries used her experience with coal mines to justify what the UAW has done to the auto industry, and the prices we pay for cars (okay, the prices OTHER people pay, as my cars are used and from other countries). I didn’t have time to respond then, but I think there’s a huge difference between coal mining and working the assembly line. For one thing, OSHA covers working conditions. For another, the UAW specializes in promoting mediocrity.

    The average UAW worker makes $73 an hour. Most college-educated engineers don’t make half that. Plus, UAW workers get 85% of their pay while they’re laid off, and have health coverage for life. It’s insane, and it’s not worth paying for, expecially considering the product I get in return. A handcrafted Rolls Royce in the perfect shade of green would be worth it. A front-wheel-drive box of rattles and squeaks? Nah.

    For a 6-month period about 13 years ago, I drove as an over-the-road trucker. I didn’t belong to the Teamster’s union, but still somehow managed to make a handsome living in comfortable conditions even without their “help”.

    Okay, the auto industry and unions are sore subjects for me. Sorry for the rant.

  2. The connection is that higher gas taxes would serve the purpose of reducing emissions much more effectively than do the CAFE standards, thereby allowing elimination of CAFE. Jenkins argues, in the first blockquote above, that CAFE helps entrench the unions.

    I agree that excessive union contracts are a problem, but be careful — the $73-per-hour stat is a myth. The New Republic does a pretty thorough job of debunking it. Briefly, the $73 figure includes all employee wages and benefits divided by ACTIVE employees. But a huge chunk of the cost comes from RETIREE pension and benefits. So the cost per active employee is $73… but those active employees actually are being paid an average of $28 an hour, plus $10 an hour worth of benefits. That annualizes to about $58,000 per year, plus gold-plated benefits and inefficient work rules.

  3. Okay, the UAW workers don’t get paid $73 an hour (I suspected the amount had been inflated in some way, but hadn’t taken the time to research it.). Still, I somehow doubt the benefits for active workers would be valued at only $10 an hour. You would think the UAW was a better um, negotiator than that.

    A problem with raising the gas tax is that the market would adjust over time. There would be some inflation, people would go back to driving inefficient cars because they can afford to, and the costs intended to be covered by the new tax would increase as well. And then there’s the massive fluctuation we’ve seen in gas prices in just the last two years.

    Dear God, did I just argue in favor of a federal government regulation?!? Let’s see, taxation or regulation… which is the lesser… :D

    Neither idea is perfect, and the worst case scenarion is implementing them both at the same time, so that’s probably the course congress will take.

    Personally, I’d like to see more people switching to more fuel-efficient modes of transport too. But of their own free will, not because of taxation or federal requirements of private industries. That’s not being idealistic, is it? ;)

  4. I don’t see anything wrong with having the tax high enough so that the people who drive are paying for ALL the fully loaded costs of driving — including all road construction and repair, personnel costs for traffic enforcement, etc., as well as carbon emission remediation. Offset it by decreasing other taxes, provide a partial rebate to low-income taxpayers who drive to work, and overall taxes don’t have to rise.

  5. Another problem I forgot to mention earlier is the issue of guaranteeing where the money goes. Here in Tennessee, Governor Phil Bredesen took money raised from gas taxes and earmarked for highway funding, and redirected it into the general fund. Which is quite illegal here. The Tennessee state legislature, however, merely passed another law stating that they meant what they said in the original law. Really. They’re not fooling around this time.

    And that can happen in Tennessee, just imagine what might happen in, oh, New Jersey.

    I’m just sayin’.

  6. Pingback: Congress May Have a Spine on Auto Bailout :All That Is Necessary…